MP Board Class 11th Accountancy Important Questions Chapter 3 Business Transactions and Double Entry System
Business Transactions and Double Entry System Important Questions
Business Transactions and Double Entry System Objective Type Questions
Choose the correct answer:
The Mathematical Expression defining the comparative relationship between Assets and Liabilities of any person, institution or Business concern is called –
(b) Accounting Equation
(c) Book – keeping
(d) None of these.
(b) Accounting Equation
Liabilities and Assets amount to Rs. 50,000 and Rs. 7,800 respectively. The difference Amount shall represent –
The basis of recording transactions is –
(c) Order form
(d) Quotation list.
As per American Belief, Accounts are of how many types –
State True or False:
- Assets = Liabilities – Capital.
- The sum of Assets is equal to the sum of liabilities.
- Capital Account represents owner’s Account in Business.
- Assets – Liabilities = Capital.
- No need of voucher to be written.
Match the following:
|Column A||Column B|
|1. Increase of Assets & Liabilities||(a) Investment of capital in business.|
|2. Decrease of Assets and Liabilities||(b) Drawings or Expenses.|
|3. Increase of Capital and Assets||(c) Payment of Liabilities.|
|4. Decrease of Capital and Assets||(d) Credit purchase of Assets.|
Business Transactions and Double Entry System Short Answer Type Questions
What is double entry system?
Double entry system of book-keeping is a system in which each transaction has two aspects, one the debit and the other credit is essential to record. In this system, for every debit there must be a corresponding credit.
“Every debit must have its corresponding credit”. Explain.
Every transaction used to have two parties, one giver and the other taker. One commodity comes then other goes. If one gets profit or income then other spends or losses. Thus, every transaction is affected by two accounts, one debit and other credit. This is the principle of double entry system, i.e., If one aspect of the transaction is written in debit side of an account, then the other aspect of the same transaction is written in the credit side of another account.
Explain the principles of double entry system.
The principles of double entry system are as follows:
1. Effect of transaction on two accounts – The fundamental principles of double entry system is that every transaction affects two aspects simultaneously. One debit and other credit.
2. Simultaneous entry in two accounts – According to their principle every transaction recorded in two accounts at the same time.
3. Two sides of each transaction – There are two sides of each transaction. One is debit and other is credit. The left side is known as debit side and right side is known as credit side.
4. Entry in three stages – The transactions are entered in three stages firstly in journal, secondly posting to the ledger accounts and thirdly make the trial balance.
5. Entry in opposite sides of an account – Under this system, an account is divided into two sides. One aspect of a transaction is written in debit side of an account, the other aspect of the same transaction is credited in another account, i.e., Transactions are entered in opposite sides of two accounts.
Explain the stages of double entry system.
The following are the three stages of double entry system:
1. Original record:
The transactions which are originally or directly recorded in a book is known as the book of original record. It is the book, where firstly the business transactions are recorded. It is also known as journal. Here transactions are recorded in chronological order.
2. Classification or ledger accounts:
The second stage of double entry system is said to be the classification of ledger accounts. In this stage, all the transactions are sorted out and written at one place. This is called posting. It is done in a book called ledger. In this book many accounts are opened. At the end, various accounts are totalled and balanced. These balances are then transferred to a statement called Trial Balance.
3. Summary or final account:
This is the third and final stage under double entry system of accounting. In this.stage, a summary is made in order to ascertain profit or loss of the business and financial position of the business. This is possible by preparing Trading Account, Profit and Loss Account and a Balance Sheet.
Explain some types of voucher.
Vouchers are divided in two parts:
- Secondary voucher
- Accounting voucher.
Secondary voucher are divided in 2 parts:
Accounting voucher are divided in 4 parts:
- General voucher
- Debit voucher
- Credit voucher
- Journal voucher or compound voucher.
What are the characteristics of Double Entry System?
Characteristics of Double Entry System:
The chief characteristics of Double Entry System of Accounting are as follows:
1. Entry in two accounts – According to the principles of Double Entry System, each transaction affects minimum two accounts and they are entered simultaneously in both the accounts.
2. Definite rules – Under Double Entry System of Book-keeping, the transactions are recorded strictly according to certain definite principles, which are not arbitrary.
3. Definite objects – The transactions are recorded with some definite objects, under this system, like to ascertain profit or loss and financial position of the business.
4. Scientific system – Double Entry System of Book-keeping is said to be the only scientific system of accounting. It is based on certain fixed principles and a definite object is attained at the end.
5. Classification of accounts – According to the principles of Double Entry System, all the accounts are classified into various headings like Personal accounts, Real accounts and Nominal accounts.
Business Transactions and Double Entry System Long Answer Type Questions
Explain the advantages of double entry system.
The following are the advantages of double entry system:
1. Complete and scientific system – In comparison to the other accounting systems, double entry system is more complete and scientific. Therefore, this system is followed all over the world by all types of business concerns.
2. Preparation of trial balance – At the end of the financial period, a trial balance is prepared to check the arithmetical accuracy of the books of accounts.
3. Information of profit or loss – Under this system, all the incomes, expenses, purchases, sales, etc. are entered in respective accounts. As a result the profit or loss can be found out by preparing a profit and loss account.
4. Knowledge of assets and liabilities – At the end of the financial year, a balance sheet is prepared to show the financial position of the business. It represents the assets and liabilities of the.business at a particular date.
5. Comparative study – Under this system, every year final accounts are prepared. Hence, it facilitates comparative study.
Why is double entry system best?
Double entry system is considered best due to following reasons:
- Various books maintained under this system is complete.
- It helps to find out any transaction easily at any time.
- Various books are maintained in this system which facilitates easy posting.
- It reduces the chances of errors.
- A trial balance is prepared in order to check arithmetical accuracy.
- It helps to know the correct financial position of the business.
Due to above reasons, it can be concluded that double entry system is best. Various economists, specially. Carter, has considered it as a complete and best system of accounting.
Explain the disadvantages of double entry system.
Following are the disadvantages of double entry system:
1. Expensive system – This system is not suitable for small business money as it needed to maintain numerous books of accounts. So, it is expensive.
2. Require special knowledge – To understand the principles of double entry system, one must be well – educated and have practical experiences.
3. Difficult to trace errors – Under this system, errors like compensating errors are difficult to find out.
4. Difficult to find out omitted entry – Under this system, an omitted entry is not possible to find out.
5. Complication in applying rules – Another drawback of this system is the application of rules of debit and credit. A slight change in applying the rules may result the accounts wrong.